Tune Out the Noise: Toward a Strategic Asset Allocation Framework for Private Wealth Investors

A perspective from Wellington Management and Cara Lafond, SFA and Multi-Asset Strategist.

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Key Points

  • Investors should consider establishing a core growth allocation emphasizing high-conviction, benchmark-agnostic strategies centered on downside mitigation
  • We suggest complementing the core with a satellite allocation to strategies seeking exposure to areas of structural change in the global economy
  • Setting a diversifier allocation with less sensitivity to equity-market movements may help support consistent lifestyle and philanthropic spending
  • It may be prudent to maintain a modest position in stabilizers for purposes of liquidity and cushioning in flight-to-safety market environments

While the sleepy-volatility regime of 2017 may have lulled some investors into believing financial markets only go up, the abrupt return of volatility in 2018 has been a wake-up call, reminding people that capital appreciation is never risk-free. In a choppy environment, we believe it is essential to tune out the noise and focus on a long-term asset allocation strategy. In this paper, we share our asset allocation framework for family office investors and identify where we are finding return opportunities.

At the core of our work with family offices, we seek to understand their needs, objectives, and risk tolerances. While no two families are alike, we do find similar threads that inform our investment strategy. For example, a common objective is often to fund philanthropic activities and to preserve and grow family asset bases for future generations. While a long-term horizon enables these investors to adopt a total-return mindset and measure success over market cycles, understanding which economic environments may create tailwinds or headwinds for various strategies can help form more realistic performance expectations. Further, we believe that to be successful stewards of family capital, private wealth investors must guard against drawdowns and behavioral biases that tempt them to deviate from long-term strategies at the worst possible times. This is a tall order in our current environment of rising interest rates, late-cycle dynamics, and divisive political discourse.

Author: Angelo Robles
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